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2014 (11) TMI 724 - AT - Income TaxRestriction in amount of disallowance u/s 14A Computation of book profit u/s 115JB Held that - AO was of the view that the provisions of Rule 8D of the Income tax Rules are applicable to the year - as decided in GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER 2010 (8) TMI 77 - BOMBAY HIGH COURT - Rule 8D of the Rules cannot be applied for the instant year - the disallowance of reasonable amount is required to be made under the provisions of section 14A of the Act - for earning a dividend income certain amount of human resources is deployed and so it would be fair to attribute 2% of the expenditure in salary, wages and bonus to be that which can be attributed for managing the investments and the corresponding dividend income - though the dividend is credited to the Bank directly, but certain portion of bank charges can be attributed for rendering this service - the total disallowance comes to ₹ 3,46,741/-. Since the assesse has already offered ₹ 13,554/-, hence the net disallowance which can be considered to be on scientific and reasonable basis would be ₹ 3,33,187. Since the disallowance of ₹ 83.14 lakhs made by the AO u/s 14A of the Act was reduced to ₹ 3,46,741 - FAA held that the amount to be added to the net profit towards the disallowance made u/s 14A of the Act for computing the book profit u/s 115JB of the Act should also be restricted to the amount determined by him the FAA is justified in directing the AO to adopt the same figure for computing the book profit u/s 115JB of the Act the order of the CIT(A) is upheld Decided against revenue. Carry forward off of the loss of the unit eligible for deduction u/s 10B of not Held that - The AO has recorded in the computation portion of the assessment order that the loss pertaining to 10B unit is not allowed to be carried forward as the same pertains to exempted income - the provisions relating to set off of loss and also carry forward of loss are provided in the Act in sections 70 to 75 of the Act AO has not drawn support of any of the provisions of the Act or any other authority in support of his decision - the approach adopted by CIT(A) is not correct - the provisions of the Act should be construed strictly - it is the duty of the AO to record the basis of his decision - Since the AO has not cited relevant provision or any authority to support his decision the matter is required to be remitted back to the AO for fresh adjudication Decided in favour of revenue. Claim of deduction u/s 10B Computation of book profit u/s 115JB Held that - The Form No.56G submitted by the Assessee shows that the Assessee is not eligible for deduction u/s 10B of the Act - the computation of book profit u/s 115JB is altogether a separate exercise - Section 115JB is a separate code by itself and the book profit has to be computed as per the methodology provided in that section - the profit and loss account is required to be prepared as per part II and Part III of Schedule VI of the Companies Act while computing the profit u/s 115JB, the reference is to be made only to profit and loss account prepared in accordance with Companies Act, 1956 - while computing Book Profit under section 115JB of the Act, the amount to be reduced is income, which is eligible for exemption u/s 10B, as computed on the basis of Book Profit as per Parts II and III of Schedule VI of the Companies Act and not on the basis of provisions of the Act - the amount of income which can be reduced by AO for computing the book profit under Clause (ii) of Explanation to section 115JB(2) of the Act will be amount which is credited to Profit and Loss Account and not amount of income which is claimed by Assessee or determined by AO while assessing the income under regular provisions of Act - there appears to be no dispute on the fact that the amount of ₹ 5.82 crores claimed by the assessee was related to the 10B unit the order of the CIT(A) is upheld Decided against revenue. Set off of brought forward loss Held that - The AO was of the view that the Assessee did not have any brought forward loss eligible to be set off against the current years income and accordingly disallowed the claim - CIT(A) directed the AO to allow the loss finally computed for AY 2006-07 while computing the total income for the current year - CIT(A) has given a direction to allow set off of losses finally computed for AY 2006-07 - the AO has determined the total income of the assessee at ₹ 1.33 crores, yet it may change depending upon the orders, if any, passed by CIT(A) or any other higher appellate authorities - if there is no loss to be carried forwarded in AY 2006-07, then the question of allowing set off of brought forward loss will not arise for the current year the order of the CIT(A) is upheld Decided against revenue.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961. 2. Set off of loss pertaining to the unit eligible for deduction under Section 10B. 3. Computation of book profit under Section 115JB and related disallowances. 4. Deduction under Section 10B while computing book profit under Section 115JB. 5. Set off of brought forward loss from the assessment year 2006-07. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act, 1961: The Revenue challenged the CIT(A)'s decision to restrict the disallowance under Section 14A to Rs. 3,33,187/- from Rs. 83,14,059/-. The Assessee had disclosed tax-free dividend income of Rs. 10.34 lakhs and made a disallowance of Rs. 13,554/- under Section 14A. The AO applied Rule 8D of the Income Tax Rules, which was not applicable for the assessment year 2007-08 as per the jurisdictional High Court's decision in Godrej & Boyce Mfg Co Ltd Vs DCIT. The CIT(A) computed a reasonable disallowance of Rs. 3,46,741/-, sustaining Rs. 3,33,187/- after considering the Assessee's disallowance. The Tribunal upheld the CIT(A)'s computation as the Revenue did not provide contrary evidence. 2. Set off of loss pertaining to the unit eligible for deduction under Section 10B: The AO disallowed the carry forward of the 10B unit's loss of Rs. 3,49,38,911/-, considering it as exempt income. The CIT(A) reversed this decision, stating that Section 10B provides a "deduction" and not an "exemption." The Tribunal noted that neither the AO nor the CIT(A) cited relevant provisions or authorities to support their decisions. Therefore, the Tribunal remanded the issue to the AO for fresh examination and decision in accordance with the law. 3. Computation of book profit under Section 115JB and related disallowances: The CIT(A) restricted the disallowance under Section 14A to Rs. 3,33,187/- while computing book profit under Section 115JB, consistent with the reduction in the regular computation. The Tribunal upheld this decision, affirming that the CIT(A)'s approach was justified and reasonable. 4. Deduction under Section 10B while computing book profit under Section 115JB: The AO denied the deduction under Section 10B while computing book profit under Section 115JB, as the Form 56G showed NIL deduction. The CIT(A) allowed the deduction, following Supreme Court and ITAT precedents that Section 115JB is a separate code, and the book profit should be computed based on the profit and loss account as per the Companies Act. The Tribunal upheld the CIT(A)'s decision, noting that the Assessee's claim of Rs. 5.82 crores related to the 10B unit was valid. 5. Set off of brought forward loss from the assessment year 2006-07: The AO disallowed the set off of brought forward loss, as the Assessee's income for AY 2006-07 was assessed at Rs. 1.33 crores. The CIT(A) directed the AO to allow the loss computed for AY 2006-07. The Tribunal noted that the final determination of loss depended on appellate orders, if any, and directed the AO to consider the issue based on the facts available. The Tribunal found no reason to interfere with the CIT(A)'s direction. Conclusion: The Tribunal partly allowed the Revenue's appeal for statistical purposes, upholding the CIT(A)'s decisions on disallowance under Section 14A, computation of book profit under Section 115JB, and deduction under Section 10B. The issue of carry forward of the 10B unit's loss was remanded to the AO for fresh examination. The set off of brought forward loss from AY 2006-07 was to be reconsidered by the AO based on subsequent appellate orders.
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